June 12, 2011
Start-up companies cannot offer any “crowd” equity for financial support without having to execute lengthy and involved filings with the Securities and Exchange Commission (SEC). Any crowd funding venture is typically set up as a membership organization. This translates into, for example, making a $100 donation in order to gain membership in a club. This membership agreement allows any member of the club’s crowd to be afforded the opportunity to vote on business decisions. Additionally, crowd members are rewarded with redeemable points toward acquiring products as opposed to receiving cash profits. Therefore, crowd funding when it comes to start-up businesses is basically that business’ fan club.
Crowd Funding Offers New Opportunities
Organizations using crowd funding projects offer a variety of new opportunities. The company using a crowd funding project has the ability to directly communicate with financial supporters. This has the benefit of cutting out any intermediary. Furthermore, you will be able to discern specifically between investors and contributors. Crowd funding is a completely unique method for start-up company financing versus any other. It creates a different type of relationship between the entrepreneur who has the business idea and the people who are providing the money to develop said idea. Typically, the start-up entrepreneur keeps total ownership of the company when it comes to using crowd funding as a source for necessary capital.
Use Of The Internet
Entrepreneurs using crowd funding as a source for capitalizing a project typically create a website where contributors receive credits toward acquiring some type of substantive object such as a T-shirt, copies of useful software, subscriptions to newsletters, plus more. The great difference between use of crowd funding versus traditional methods of capitalization is that contributors receive no stock certificates, there are no Board of Directors, and there is never any equity to pay out. There is an exchange of some sort of product or service from the entrepreneur to the contributor with regards to the financial contribution each one makes. The reason the Internet is used as an ideal way to raise money using a crowd funding concept is due to the fact that it’s quite easy to make connections online as well as making many. When seeking traditional investors as a source for start-up capitalization, typically there needs to be a strong relationship created between the entrepreneur and the person supplying the capital. This is not necessary when using crowd funding as a source for capitalization, specifically one conducted online since all the information necessary for a contributor to understand the arrangement is provided through a website. Furthermore, offering the exchange of some sort of valuable product or service in return for a contribution can be conducted at minimal amounts of money since crowd funding online can be presented to an unlimited amount of viewers.
A Great Alternative To Loans
Any entrepreneur dreaming about taking an idea and developing it into a profitable business always comes up with a business plan that considers taking out an initial start-up loan in order to get that idea developed and up and running. There are obvious risks for both the lender as well as the person seeking a loan. And, often many people believe obtaining a traditional loan is the best way to capitalize a specific venture. However, using money through a start-this up business loan might be quite a dangerous situation for even the most passionate and dedicated entrepreneur. If the end result is absolutely outstanding, then the choice was a perfect one to make. However, start-up personal loans, or even business loans that are guaranteed personally, may find even the best entrepreneur in considerable trouble if things do not work out. Any business person might find themselves swamped in debt, facing insolvency and possibly bankruptcy as well.
Emotional Relationships Avoided
Although a business start-up loan can give any talented entrepreneur a huge advantage when starting out, if you remove the loan from the business plan initially, and insert crowd funding as an alternative strategy, you may find it possible to capitalize your venture from contributions that seek no additional compensation other than the simple product proffered at the start. Plus, the anonymity provided by sheer numbers marketed through a crowd funding website vehicle takes any emotional aspects totally out of the equation.
Additionally, crowd funding projects conducted through an online presence can actually be an ongoing venture kept active creating a continuous source for additional funding as a particular business start-up grows possibly needing another financial boost for expansion or unexpected expenses.
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